NO. 83--219 

IN THE SUPREfiE COURT OF THE STATE OF MONTANA 

1984 

HELEN FOSTER NEEL, 

Plaintiff and Appellant, 

FIRST FEDERAL SAVINGS AND LOAN ASSOC. 

OF GREAT FALLS, a Federal Assoc., 

Defendant and Respondent. 

APPEAL FROM: District Court of the Eighth Judicial District, 

In and for the County of Cascade, 

The Honorable E. William Coder, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Regnier & Lewis; Stephen D. Roberts argued, Great 

Falls, Montana 

For Respondent : 

Dzivi, Conklin & Nybo; E. Lee LeVeque and William 

Conklin argued, Great Falls, Montana 

Submitted: October 28, 1983 

Decided: January 5, 1984 

Filed: JRN 5 - 1984 

-- 

Clerk 
Mr. Justice John Conway Harrison delivered the Opinion of 

the Court. 

This appeal is from the District Court's summary 

judgment that appellant's homestead declaration is invalid 

and that the amendments to Section 70-32-104(2), MCA are not 

to be retroactively applied. The question posed is whether 

amendments raising the exemption amount should be applied to 

debts incurred before the effective date of the amendment, 

and the constitutionality of such an application. We 

reverse. 

The issues in this case are: 

(1 Was the property description in appellant's 

homestead declaration sufficient to create a valid homestead 

exempt ion? 

(2) Must the amendment to Section 70-32-104(2), MCA, 

raising the exemption amount to $40,000 be retroactively 

applied to all who filed homestead declarations prior to 

forced sales of their homesteads, without reference to when 

the debts were incurred? 

(3) If the amendment is applied retroactively, does 

that application violate the Contract Clause of the U.S. and 

Montana Constitutions? 

(4 Is a married person entitled to the full 

homestead exemption on his/her individual interest in the 

homestead property? 

The material facts in this case are not in dispute and 

were stipulated to by the parties in the District Court. On 

July 25, 1979, appellant and Louise Manzer executed and 

delivered to respondent a mortgage note to secure a loan 

used to buy property at 412-422 Fourth Street North in Great 
Falls, Montana. The loan was secured only by the mortgage 

to that property, and respondent did not inquire of, or 

request appellant's personal residence be used as additional 

collateral for the loan. Appellant's husband did not 

participate in obtaining the loan, or sign any of the 

documents, nor was their personal residence put up as 

collateral for the loan. 

On July 21, 1980, appellant and her husband executed 

and recorded a declaration of homestead, as husband and 

wife, on their personal residence located at 402 Fifth 

Avenue North, in Great Falls. The property description on 

that declaration described the property as, "Lot 1; Block 

191; First Addition to Great Falls, Montana." (Emphasis 

added.) The correct legal description of the property is, 

"Lot 1; Block 191; town or townsite, Great Falls, Montana." 

(Emphasis added.) As of September 1, 1980, the Ownership 

Book of Cascade County listed the homestead declaration with 

the correct legal description of the property. There is 

only one Block 191 in the official plat of Great Falls. 

Respondent's loan officer who negotiated the loan had actual 

knowledge prior to approval of the loan that appellant and 

her husband owned and occupied as their residence, the 

property at 402 Fifth Avenue North in Great Falls. 

A foreclosure action on the mortgage was filed by 

respondent on October 17, 1980. Judgment was entered in 

respondent's favor on June 29, 1981, and the mortgaged 

property was ordered sold. The property was sold for less 

than the loan amount, and respondent recovered a deficiency 

judgment in the amount of $44,344.95, plus costs and 

interest. 
An execution writ was issued against appellant on 

September 9, 1981, and was levied the following day on her 

residence at 402 Fifth Avenue North. Proper notice of the 

sale of appellant's home was given, and on September 28, 

1981, respondent filed a "Petition to Appoint Appraisers to 

Appraise Homestead after Levy of Execution Pursuant to 

Section 70-32-203, MCA." 

On October 2, 1981, appellant filed this action 

seeking a declaratory judgment on the effect of several 

amendments to the Montana Homestead statutes which became 

effective October 1, 1981. The amendments increased the 

exemption amount from $20,000 to $40,000, and allowed the 

homestead declaration to be filed after judgment had been 

entered against the declarant. Appellant sought a judgment 

declaring that the amount of exemptions claimed before the 

effective date of the amendments, automatically increased to 

$40,000; and that the amendment allowing a declarant to file 

his homestead declaration after judgment has been obtained 

exempts that homestead from forced sale if the declaration 

is filed before such forced sale. On October 5, 1981, the 

District Court granted a stay of the execution proceedings 

pending a decision on the declaratory judgment action. 

The case was submitted on cross motions for summary 

judgment and briefs were filed by both parties. In the 

meantime, appellant filed a new homestead declaration on 

October 1, 1982, containing a corrected legal description. 

Judgment was entered on March 22, 1983, wherein the District 

Court, per Judge H. William Coder, found appellant's 

original homestead declaration invalid because of the 

misdescription, and that the new declaration did not invoke 
the amendments because the amendment was effective after 

entry of the deficiency judgment. From this judgment the 

appeal is taken. 

The first issue is whether the misdescription of 

plaintiff's homestead property in the July 21, 1980, 

declaration of homestead renders the declaration invalid. 

The validity of a homestead declaration with an incorrect or 

an inadequate legal description is an issue of first 

impression in this Court. The respondent relies heavily 

upon McCarthy v. Kelley (1922), 63 Mont. 233, 206 P. 782, 

and Yerrick v. Higgins (1899), 22 Mont. 502, 57 P. 95. In 

McCarthy, supra, the claimant attempted to claim her 

homestead on an amount of real estate considerably in excess 

of that allowed by the statue and this Court found the 

declaration of homestead void. In Yerrick, supra, the Court 

disallowed an exemption on the plaintiff's property in which 

he attempted to exempt some 2,100 square-feet in excess of 

the one fourth of an acre allowed by law. That exemption 

was not allowed even though the Court acknowledged that the 

excess could be taken off the east side of the lot without 

disturbing any of the dwellings. In each of these cases the 

reasoning was that the claimants had attempted to exempt 

more property than was allowed by law. There were no 

statutory provisions for removing the excess from the 

claimed amount, therefore it could not be determined which 

property was being claimed and the declarations were held 

invalid. In addition respondent cites Esten v. Cheek 

(9th.Cir.1958), 254 F.2d 667, as a case on all fours with 

this case. That particular case involved a bankruptcy where 

the claimant incorrectly described her property as Lot 204, 
Tract 5069, but in her declaration of bankruptcy, she 

declared homestead property located at Lot 104, Tract 5069. 

The court in its opinion admitted that the declaration was 

faulty only as to one point, and otherwise conformed with 

a11 the homestead laws of California. It reversed a 

bankruptcy judge who had allowed the exemption holding that 

no reformation was possible. 

Appellant cites the Montana cases, Oregon Mortgage Co. 

v. Dunbar (1930), 87 Mont. 603, 289 P. 559; Williams v. 

Sorenson (1938), 106 Mont. 122, 75 P.2d 784; and Howe v. 

Messimer (1929), 84 Mont. 304, 275 P. 281. Dunbar, supra, 

dealt with a homestead declaration on ten more acres than 

were owned by the claimant, but less than the statutory 

amount. This Court upheld the validity of the homestead, 

reasoning that the Yerrick and McCarthy rationale did not 

apply. There could be no mistake as to what was claimed by 

the declarant. 

We have carefully examined the cases cited above and 

other cases in the briefs and find that the weight of 

authority on this issue is on appellant's side. As this 

Court noted in State v. Lensman (1939), 108 Mont. 118, 88 

P.2d 63, "It is not every error in a description which will 

invalidate a proceeding or conveyance.'' 108 Mont. at 125, 

88 P.2d at 66, citing State ex rel. Arthurs v. Board of 

County Commissioners (1911), 44 Mont. 51, 118 P. 804, and 

Howe, supra. Further, this Court has stated in Williams, 

supra, that: "A substantial compliance with the statute is 

sufficient and technical objections will not defeat an 

exemption claim." 106 Mont. at 126, 75 P.2d at 786. 

In each of these Montana cases the Court looked to the 
purpose of the particular requirement in determining whether 

the defect would void the entire declaration. Where the 

defect would not work to the detriment of another party the 

declaration was upheld. The purpose of including the legal 

description of the property in homestead declarations, is to 

put all the world on notice as to what property is affected 

by the declaration. Following the rationale of these prior 

Montana cases, if the property can be found by the legal 

description contained on the declaration, then the 

declaration should be valid. In the present case, the 

appellant is further aided by the fact that the respondent 

knew where the property was located and knew it was the 

subject of the homestead declaration. Combined with the 

rule that Montana homestead laws will be liberally construed 

in favor of the claimant, Dunbar, supra, this leads us to 

hold that the defect does not invalidate the declaration in 

this case. 

The second issue raised on appeal is whether the 

plaintiff's homestead exemption is limited to her exemption 

rights as of the time she entered into her contract debt 

with the defendant. Section 70-32-104(2), MCA, as amended 

October 1, 1981, states: 

"Such homestead, in either case, shall 

not exceed in value the sum of $40,000. 

However, in any proceedings instituted to 

determine the value of such homestead, 

the assessed value of the land which 

included appurtenances, if any, and of 

the dwelling house as appears on the last 

completed assessment roll preceding the 

institution of such proceedings shall be 

prima facie evidence of the value of the 

property claimed as a homestead." 

This section was first enacted in our Civil Code, 

1895, and reenacted several times but amended upwards from 
the value of $2,500 in the original act, now to the latest 

amount $40,000 from the prior $20,000. As noted in the 

facts, appellant filed her declaration of homestead prior to 

the effective date of the latest amendment. 

Respondent relies on a long established statutory rule 

of construction in arguing that the increased homestead 

exemption amount should not apply to debts contracted prior 

to October 1, 1981 because such an application would be 

retroactive in effect. Section 1-2-109, MCA, provides that 

"no law contained in any of the statutes of Montana is 

retroactive unless expressly so declared." 

Resolution of this issue involves a two step process. 

First it must be determined if the proposed application of 

the amendment would be retroactive in effect. If this is 

answered in the negative, the application sought is 

prospective and the inquiry ends. If the application sought 

would be retroactive in effect, then to validate such an 

application, a legislative intent for it to operate in such 

a manner must exist. See Castles v. State, ex rel. 

Department of Highways (Mont. 1980), 609 P.2d 1223, 37 

St.Rep. 734. Appellant argues first that the application 

sought is not retroactive and second that even if it is, the 

legislature intended the amendment to be retroactively 

applied. 

A retroactive law is one which "[TJakes away or 

impairs vested rights acquired under existing laws or 

creates a new obligation, imposes a new duty or attaches a 

new disability in respect to transactions already past. " 

City of Harlem v. State Highway Commission (1967), 149 Mont. 

281 at 284, 425 P.2d 718 at 720. The amendment here being 
considered, increasing the homestead exemption, obviously 

does not create any new obligations or impose any new 

duties. Nor does the act making the increased exemption 

applicable to all debts whenever contracted, constitute a 

law which "takes away or impairs vested rights acquired 

under existing contracts." 

The contract here between the parties in no way 

involved the plaintiff's homestead. Indeed, the homestead 

statute itself provided a means by which the respondent 

First Federal, could have obtained a vested right to execute 

against the appellant s homestead free of any homestead 

exemption whatsoever under its "existing contract." See, 

Section 70-32-202(3) and (4), MCA, (pre-amendment) and 

Section 70-32-202(2) and (3), MCA, (post-amendment), which 

both specifically exclude any homestead exemption for a 

claimant when the creditor executes on a debt secured by a 

collateral mortgage on the homestead. Had respondent First 

Federal by contract made its loan to the appellant 

contingent upon a collateral mortgage on her homestead, 

there would be no homestead exemption whatsoever under 

either pre-amendment or post-amendment Montana homestead 

law. 

Here, rather than bargaining for a collateral mortgage 

on Mrs. Neel1s homestead as a condition for the loan and 

thereby acquiring a vested right under the loan contract, 

the stipulation of facts presented to the trial court, 

paragraph 5 stated: 

". . . at no time prior to making the 

loan, did any agent of First Federal ask 

plaintiff Neel about her residence as 

collateral for the loan, or state to 

plaintiff Wee1 that First Federal deemed 

plaintiff Neel Is residence property at 
402 Fifth Avenue North, Great Falls, 

Montana to be additional security for the 

loan. The loan for the property 

described in paragraph 2 [the property 

purchased with the loan] was secured by 

the mortgage to that property alone." 

Why this was not done as part of the bargain for her 

loan is unexplained. Perhaps it was due to the fact, that 

to do so would have required the assent and consideration of 

her husband, John S. Neel, who owned the homestead property 

in joint tenancy with plaintiff. It is clear, however, that 

by not making a collateral mortgage on plaintiff's homestead 

property a part of the contract bargain between the parties, 

the respondent was not required to obtain the husband's 

approval for the loan or obtain his signature subjecting his 

homestead to be lost if the loan could not be repaid. Thus, 

without in any way making the appellant's homestead a part 

of the bargain and without obtaining the husband's consent, 

the respondent was able to negotiate a loan for a 

substantial sum of money to the plaintiff and her partner 

with the prospect of receiving an 11% interest return. 

The right which respondent claims was infringed upon 

when the legislature applied the increased homestead 

exemption to all debts, even after judgment was entered, was 

therefore not a right acquired under an existing contract. 

The fact that the respondent later obtained a judgment 

on its debt against the plaintiff Neel, moreover, did not 

magically transform this into a right acquired by contract. 

See Home Bldg. & Loan Assoc. v. Blaisdell (1934), 290 U.S. 

398 at 429, 54 S.Ct. 231 at 236, 78 L.Ed. 413 at 424, n. 8; 

and Stanford v. Coram (1903), 28 Mont. 288, 72 P. 655. As 

was stated in Stanford, supra, when a claim on a contract is 

reduced to judgment, "The contract between the parties is 
voluntarily surrendered and canceled by merger in the 

judgment and ceases to exist. It is no longer looked to for 

any purpose except as evidence supporting the judgment." 28 

Mont. at 292, 72 P. at 655. 

However, the right to execution is a "right acquired 

under existing laws." We find it unnecessary to determine 

when this right vested, suffice it to say that the right did 

vest before the effective date of the subject amendments. 

Laws existing at the date a contract is executed are as much 

a part of the contract as if set forth therein. Rieger v. 

Wilson (1936), 102 Mont. 86, 56 P.2d 176. A judgment on a 

contract does not create a new right, but only, "[Dlefines 

and determines what rights already exist." Stanford, supra, 

28 Mont. at 291, 72 P. at 655. Since the application sought 

by appellant would impair rights acquired under existing 

laws, the proposed application would be retroactive in 

effect. 

In Montana law, there exists a presumption against 

retroactive application of statutes. Dunham v. Southside 

National Bank (1976), 169 Mont. 466, 548 P.2d 1383. For a 

statute to be retroactively applied, such an intent must be 

clearly expressed by the legislature. Section 1-2-209, MCA. 

The legislative intent must be gathered from the act itself 

and no other source. Penrod v. Hoskinson (1976), 170 Mont. 

277, 552 P.2d 325. However, "If it is unmistakable that an 

act was intended to operate retrospectively, that 

intention is controlling as to the interpretation of the 

statute, even though it is not expressly so stated." 

Davidson v. Love (1953), 127 Mont. 366 at 370, 264 P.2d 705 

at 707. 
Here the legislature entitled the act which increased 

the homestead exemption from $20,000 to $40,000, "an act to 

revise the homestead laws; increasing the exemption to 

$40,000 . . . allowing the exemption to be claimed after a 

judgment is recorded." The appellant took advantage of this 

act, asserted her rights as the law allows her to do and 

claimed the $40,000 exemption after the judgment recovered 

by First Federal had been recorded. We find that the 

legislative intent is clear and allowed the appellant to 

obtain the benefits of the increased exemption on debts 

contracted prior to October 1, 1981. 

The respondent contends that there is nothing in the 

statute, Section 70-32-104, MCA, that expressly declares it 

retroactive. Therefore since there is a presumption in 

Montana that statutes operate prospectively only, every 

reasonable doubt should be resolved against retroactive 

application. The appellant counters arguing that Section 

70-32-104, MCA, clearly indicates in the title of the 

statute the fact that it is remedial in nature, which 

requires retroactive application. She further cites to the 

legislative history of the act which points to the 

legislative objective behind the amendment; to comply with 

the Constitutional mandate to "[Elnact liberal homestead and 

exemption laws. " Constitution of the State of Montana, 

Article XIII, section 5. 

We are guided by the maxim of law which favors giving 

protection to the homestead. In Montana, the homestead laws 

are to be liberally construed in favor of the homestead 

claimant. Oregon Mortgage Co. v. Dunbar, supra. Under the 

correct approach, the creditor claiming the homestead is on 
the same plane as other creditors seeking the proceeds of a 

judicial sale and all creditors are paid according to their 

respective ranking after payment of cost. The whole theory 

of the exemption of the homestead is that the obligation of 

the debtor to those whom he owes the duty to support is a 

higher obligation than the payment of his debts. The 

purpose of the framers of the law was to secure a home 

beyond the reach of financial misfortune, around which 

gather the affections of the family; the greatest incentive 

to virtue, honor and industry. Despite the absence of an 

express declaration, we find that the legislative intent is 

unmistakable; the amendments are to apply to - all debts 

whenever contracted. 

Issue three is whether the amendments to the homestead 

act which increase the homestead exemption from $20,000 to 

$40,000, and allow the increased exemption to be claimed 

even after judgment, violate the Montana and United States 

Constitutions' contract clauses. 

The United States Constitution, Article 1 Section 10, 

cl. 1, in pertinent part reads: "No state shall. . . pass 

any. . . law impairing the obligation of contracts . . ." 

The language contained in Article 11, section 31 Montana 

Constitution 1972, is substantially the same as the contract 

clause language of the United States Constitution. This 

Court has construed the two contract clauses interchangably, 

relying on United States Supreme Court opinions to test the 

validity of Montana legislation under both contract clauses, 

see e.g., The City of Butte v. Roberts (1933), 94 Mont. 482, 

23 P.2d 342. 

It is the position of respondent that the act which 
allows a homestead-owner, such as appellant to obtain a 

homestead exemption increased from $20,000 to $40,000, 

violates the contract clause when invoked against creditors 

who extended credit or obtained judgments prior to the act's 

effective date. 

This argument has merit, in that the right to execute 

on appellant's homestead was acquired prior to the effective 

date of the amendments. As noted in discussion of the prior 

issue it is unnecessary to find at what point the right 

vested; suffice it to say the vesting predated the 

amendments as laws existing at the date a contract is 

executed are as much a part of the contract as if set forth 

therein. Reiger, supra. 

Early case law supports the respondent's position. 

See Edwards v. Kearzey (1877), 96 U.S. 595, 24 L.Ed. 793, and 

Rieger v. Wilson (1936), 102 Mont. 86, 56 P.2d 176. While 

earlier judicial pronouncements lent support to the 

contentions of respondent, the latest cases of the United 

States Supreme Court and cases of this Court are to the 

contrary. See, City of El Pas0 v. Simmons (1965), 379 U.S. 

497, 85 S.Ct. 577, 13 L.Ed.2d 446. Earlier cases, Reiger, 

supra, held that if a remedy formerly available to enforce a 

contract was abrogated or substantially effected by state 

action, then the contract itself was impaired. Later the 

Court's decisions began to concern themselves with the fine 

distinction between the remedy and the obligation. 

In Simmons, the United States Supreme Court summarizes 

development of the law in this language: 

"The City seeks to bring this case within 

a long line of cases recognizing that 

distinction between contract obligation 

and remedy and permitting a modification 
of the remedy as long as there is no 

substantial impairment of the value of 

the obligation. (citations omitted) 

"We do not pause . . . to chart again the 

dividing line under federal law between 

'remedy' and 'obligation'. . . For it is 

not every modification of a contractual 

promise that impairs the obligation of 

contract under federal law, any more than 

it is every alteration of existing 

remedies that violates the Contract 

Clause." (citations omitted) 

"The decisions 'put it beyond question 

that the prohibition is not an absolute 

one and is not to be read with literal 

exactness like a mathematical formula,' 

as Chief Justice Hughes said in Home 

Building & Loan Assn. v. Blaisdell, 290 

U.S. 389, 428. The Blaisdell opinion, 

which amounted to a comprehensive 

restatement of the principles underlying 

the application of the Contract Clause, 

makes it quite clear that ' [nlot only is 

the constitutional provision qualified by 

the measure of control which the State 

retains over remedial processes, but the 

State also continues to possess authority 

to safeguard the vital interests of its 

people. It does not matter that 

legislation appropriate to that end "has 

the result of modifying or abrogating 

contracts already in effect." (citations 

omitted) Not only are existing laws read 

into contracts in order to fix 

obligations as between the parties, but 

the reservation of essential attributes 

of sovereign power is also read into 

contracts as a postulate of the legal 

order . . . . This principle of 

harmonizing the constitutional 

prohibition with the necessary residuum 

of state power has had the progressive 

recognition in the decisions of this 

Court.'(citations omitted) Moreover, the 

'economic interests of the State may 

justify the exercise of its continuing 

and dominant protective power 

notwithstanding interference with 

contracts.' (citations omitted) The 

State has the 'sovereign right. . . to 

protect the. . . general welfare of the 

people . . . . Once we are in this 

domain of the reserve power of a State we 

must respect the "wide discretion on the 
part of the legislature in determining 

what is and what is not necessary."' 

(citations omitted) As Mr. Justice 

Johnson said in Ogden v. Saunders, ' [i] t 

is the motive, the policy, the object, 

that must characterize the legislative 

act, to affect it with imputation of 

violating the obligation of contracts.' 

12 Wheat. 213, 291. 

"Of course, the power of a State to 

modify or affect the obligation of 

contract is not without limit. 

[Wlhatever is reserved of state power 

must be consistent with the fair intent 

of the constitutional limitation of that 

power. The reserved power cannot be 

construed so as to destroy the 

limitation, nor is the limitation to be 

construed to destroy the reserved power 

in its essential aspects. They must be 

construed in harmony with each other. 

This principle precludes a construction 

which would permit the State to adopt as 

its policy the repudiation of debts or 

the destruction of contracts or the 

denial of means to enforce them.' 

Blaisdell, supra at 439." 379 U.S at 

503-9, 85 S.Ct. 581-4, 13 L.Ed.2d 451-5. 

Following this reasoning is Hooter v. Wilson 

(Louisiana 1973), 273 So.2d 516, where the Supreme Court of 

Louisiana noted: 

"When the state changed the remedy by 

increasing the exemption, it did not 

abrogate the remedy; it did not make the 

remedy any less certain than it was at 

the time of contract; it simply in the 

interest of the public welfare increased 

the debtor's exemption so that he and his 

family might be saved from being a charge 

upon the state." 273 So.2d at 522. 

In Ouachita National Bank v. Rowan (- 1977), 

La. App. 

345 So.2d 1014, again the Louisiana court reasoned: 

"The homestead exemption was not a new 

creation of the 1974 Constitution but was 

a continuation and a mere modification or 

increase of the existing exemption. We 

have found that the modification (or 

increase) does not impair the contracts 

at issue . . . but even should our 

findings be otherwise, we also would find 
'the economic interest of the state. . . [to] justify the exercise of its 

continuing dominant protective power 

notwithstanding interference with 

contracts.' (citations omitted) The 

result here does not repudiate the I. . . debts or destruction of contracts . . . or [deny the Bank the] the [sic] means 

to enforce them.'" 345 So.2d at 1018. 

Our holding does not do violence to the holdings of 

the cases referred to by respondent under the respective 

factual circumstances there present. Those cases were not 

decided under similar circumstances or in light of the 

authority presented here. 

It is to be noted that the respondent in relying on 

Kearzey, supra, and Rieger, supra, as being the law, failed 

to discuss the most recent United States Supreme Court 

Opinion on the contract clause, Energy Reserves Group, Inc., 

v. Kansas Power and Light - Co. (1983) U.S. --? 103 

The Supreme Court in Energy Reserves, noted that an 

examination of the legislation for validity under the 

contract clause requires a three step analysis. The 

threshold inquiry is "whether the state law has, in fact, 

operated as a substantial impairment of the contractual 

relationship. I' U.S. at , 103 S.Ct. at 704-5, 74 

L.Ed.2d 569; citing Allied Structural Steel Co. v. 

(1978), 438 U.S. 234 at 244, 98 S.Ct. 2716 at 2722, 57 

E.Ed.2d 727. If there is no substantial impairment of the 

contractual relationship, the inquiry is ended. Second, if 

the legislation substantially impairs the contractual 

rights, " [t] he sta,te, in justification, must have a 

significant and legitimate public purpose behind the 

regulation." U.S. at , 103 S.Ct. at 705, 74 
L.Ed.2d 569; citing U.S. Trust Co. v. New Jersey (1977), 431 

U.S. 1 at 21, 97 S.Ct. 1505 at 1518, 52 L.Ed.2d 92. Third, 

the adjustment of rights and responsibilities of contracting 

parties must be based " [ulpon reasonable conditions" and be 

"[olf a character appropriate to the public purpose 

justifying the legislation's adoption." U.S. at I 

103 S.Ct. at 705, 74 L.Ed.2d 569. As the opinion notes, 

unless the State is a party to the contract, courts will 

properly defer to legislative judgment on this third step. 

Since the State is not a party to this contract we will not 

question the propriety of this legislation, thus we are 

faced with a two part inquiry on the facts presented. 

Energy Reserves Group, supra, set forth criteria for 

making the threshold determination on substantial 

impairment. Total destruction of contractual expectations 

is not necessary, and a law which restricts a party to gains 

reasonably expected from a contract is not a substantial 

impairment. Further, the extent the particular industry has 

been regulated in the past will mollify the amount of 

impairment, if any. We find that the act as applied in the 

manner proposed by appellant does not operate as substantial 

impairment of the parties contractual relationship. 

In this case, the area in dispute had been heavily 

regulated in the past. Indeed there has been a homestead 

exemption law literally before Montana became a state. See 

Section 194, page 81, Bannack Statutes; Section 1-9, page 

77-79, (1869). "When he [respondent] purchased into an 

enterprise already regulated in the particular to which he 

now objects, he purchased subject to further legislation 

upon the same topic." Energy Reserves Group, supra, 
U.S. at , 103 S.Ct. at 705, 74 L.Ed.2d 569, citing Viex 

v. Sixth Ward Building and Loan Association (1940), 310 U.S. 

32 at 38, 60 S.Ct. 792 at 794-5, 84 L.Ed. 1061. Here 

respondent made its loan to the appellant and Louise Manzer 

subject to further legislation on homestead exemptions. 

Respondent's execution rights are granted by law, 

independent of its remedies provided in the contract. 

"Parties appealing to the law can take only what the law 

awards them." Stanford v. Coram (1903), 28 Mont. 288 at 

292, 72 P. 655 at 655. The respondent should have been well 

aware that the homestead exemption had been increased 

regularly over the past fifty years, and knew that 

appellant's residence would be subject to homestead 

exemption, therefore took its chances that the State might 

increase it. See, United States v. Smith (E.D. Louisiana 

1980) 486 F.Supp. 76 at 78. 

In addition, Montana's act allowed the increased 

exemption to be claimed after judgment, which simply 

restricted respondent to gains reasonably expected from its 

contract. Because the loan was not secured by a collateral 

mortgage on the homestead, respondent, at the time of the 

loan, could not reasonably have relied upon appellant's 

continued ownership of the homestead property to the time of 

execution and judgment. Hooter v. Wilson (Louisiana 1973), 

273 So.2d 516 at 522. Here respondent did not question 

appellant about her residence as collateral for the loan, or 

state that it deemed her residential property to be 

additional security. Rather than being a "central 

undertaking" of the parties in the loan agreement, the 

continued existence of appellant's interest in her homestead 
property at the time of execution by the respondent was no 

more than an unbargained for windfall. In short the 

creditor's reasonable expectations were not impaired by the 

state act. 

We therefore find that the act increasing the 

homestead exemption and allowing claimants to claim the 

increased $40,000 exemption applies to all debts, whenever 

contracted, regardless of whether those debts were already 

reduced to judgment. This interpretation is reasonable and 

necessary to insure an adequate homestead exemption to the 

people of Montana and applies to the case at bar. Even if 

the amendment had operated as a "substantial impairment" of 

the parties contractual relationship, it would be valid 

under the second step of the contract clause analysis. In 

the instant case, we must attempt to reconcile the 

strictures of the contract clause with the "essential 

attributes of sovereign power. . . necessarily reserved to 

the states to safeguard the welfare of their citizens." 

U.S. Trust Co. v. New Jersey (1977), 431 U.S. 1 at 21, 97 

S.Ct. 1505 at 1518, 52 L.Ed. 2d 92. Without this 

legislation, a vast class of debts contracted prior to 

October 1, 1981, would be immune from this remedial 

legislation, and a large class of citizens would therefore 

continue to suffer under the onus of an inadequate $20,000 

exemption which the legislature felt did not meet the times 

or our Constitution. 

Issue four is whether appellant is entitled to the 

full $40,000 homestead exemption on the equity in her 

undivided one-half interest in her homestead propery. 

Appellant argues that an undivided interest is entitled to 
the entire homestead exemption instead of an amount 

proportional to her interest as suggested by respondent. 

The gist of the respondent's argument is that the homestead 

exemption applies to property as a whole, there being only 

one exemption. Thus when an owner of an undivided interest 

in property claims an exemption, he or she is limited to the 

exemption amount proportional to his or her undivided 

interest. In support thereof, respondent cites a number of 

California cases, in particular it alleges as controlling an 

appellate court decision, Application of Rauer's Collection 

(1948), 87 Cal.App.2d 248, 196 P.2d 803. We note that since 

the Rauer's opinion, decisions of the California courts have 

refused to follow the holding in that case, thus it is not 

good authority for respondent's position. See, Schoenfeld 

v. Norberg (1970), 11 Cal.App.3d. 755, 90 Cal.Rep. 47; 

Strangman v. Duke (1956), 140 Cal.App.2d 185, 295 P.2d 12. 

In Strangman, supra, the California Court noted, "There is 

no provision in our statute for the apportionment of an 

exemption in any situation." In Montana we likewise have no 

such provision. The Strangman decision, supra, held that if 

one spouse's creditors move against his/her undivided 

interest in the homestead property held in joint tenancy, 

that the spouse gets the benefit of the entire exemption. 

Finding the California decisions irreconcilable, we believe 

the holding in Strangman, supra, is preferable and is in 

accord with Montana law. 

Section 70-32-103 MCA, provides from whose property 

the homestead may be selected. If the claimant is married, 

the homestead may be selected from property of either 

spouse. In addition to our statute, this Court has held 
several times that a homestead may be claimed on an 

undivided interest in the land. See Wall v. Duggan (1926), 

76 Mont. 239, 245 P. 953; Esterly v. The Broadway Garage 

Co., et al. (1930), 87 Mont. 64, 285 P. 172; DeFontenay v. 

Childs (1933), 93 Mont. 480, 19 P.2d 650; Isom v. Larson 

(1927), 78 Mont. 395, 255 P. 1049. In Lindley v. Davis 

(1887), 7 Mont. 206, 14 P. 717 this Court held that a 

tenant-in-common is entitled to the full homestead 

exemption. 

In addition, as previously noted in this opinion, 

strong policy considerations exist which mandate that either 

debtor/spouse be entitled to the full $40,000 homestead 

exemption on his or her undivided half interest in the 

property. In Montana, homestead laws are to be liberally 

construed in favor of the claimant. Oregon Mortgage Co. v. 

Dunbar, supra. We therefore find that appellant is entitled 

to the full $40,000 homestead exemption on her undivided 

one-half interest in the homestead property. 

The judgment of the District Court is reversed and the 

case is remanded for further proceedings in compliance with 

this opinion. 

We concur: 

Chief 

%4 

Justice 

J,% 4